Indian Budget 2012-13: First Look

Finance Minister, Pranab Mukherjee has come up with the Budget for financial year 2012-2013. Many had expected a reform rich budget this year, as the next year budget has all probability of being a populist one in light of the coming elections.

But Pranab has played different cards this time. The first look on Indian Budget gives the impression of a smart attempt. Not pompous with too many populist measures, but the budget also visibly lacks any bold measures/ reforms. The lack of crucial reforms/ strict taxes should be seen in light with the current coalition politics bargaining at the center. A bold and reform rich budget may not get passed by the Parliament, but a smart one can!

Analyzing the current political scenario, the financial minster has tried his best that instructions in the budget will not result in protests from his own allies, including Mamata Banerjee. This budget stands out not because of the reforms/steps taken; but for the un-necessary populist steps not taken – which drains out the money on un-productive initiatives.

Yes, Pranab has tried to curb the un-tamed expenditure. He has kept silence on expenditure in certain areas like MNERGS which needs around 50000 Crore. He has also made sure to take some tax reforms which can fetch economy increased tax revenues.

High lights of Indian Budget 2012-13

Income Tax Limit

Income tax exemption limit for individuals is raised to Rs 2 lakh per annum from Rs 1.80 lakh.

Individual will have to pay 10 per cent tax on income between Rs 2 lakh and Rs 5 lakh; 20 per cent between Rs 5 lakh and Rs 10 lakh; and 30 per cent for above Rs 10 lakh.

“My proposals on direct taxes are estimated to result in a net revenue loss of Rs 4,500 crore for the year,” Mukherjee said.

Fiscal Deficit (Borrowings) and Fiscal consolidation

Fiscal consolidation is the term that is used to describe the creation of strategies that are aimed at minimizing deficits while also curtailing the accumulation of more debt.

The fiscal deficit in the current year has turned out to be as high as 5.9%. The finance minister assured that he will bring it down to 5.1% of GDP.

Rise in Taxes – More Revenue?

There will rise in customs, excise duty and widening of service tax. In the Union Budget, both excise duty and service tax have been raised from 10 to 12 per cent.

Subsidies

Endeavor to keep central subsidies under 2 per cent of GDP in 2012-13. Over next 3 year, to be further brought down to 1.75 per cent of GDP.

Disinvestment

For 2012-13, ‘30,000 crore to be raised through disinvestment. At least 51 per cent ownership and management control to remain with Government.

FDI

Efforts to arrive at a broadbased consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail upto 51 per cent.

Rajiv Gandhi Equity Saving Scheme

Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 per cent to new retail investors, who invest upto ‘50,000 directly in equities and whose annual income is below `10 lakh to be introduced. The scheme will have a lock-in period of 3 years.

Capitalization of Public Sector Banks

To protect the financial health of Public Sector Banks and Financial Institutions, `15,888 crore proposed to be provided for capitalisation. Possibility of creating a financial holding company to raise resources to meet the capital requirments of PSU Banks under examination.

Infrastructure Development

During Twelfth Plan period, investment in infrastructure to go up to 50 lakh crore with half of this, expected from private sector.

First Infrastructure Debt Fund with an initial size of `8,000 crore launched earlier this month.

Tax free bonds of `60,000 crore to be allowed for financing infrastructure projects in 2012-13.

National Manufacturing Policy announced with the objective of raising, within a decade, the share of manufacturing in GDP to 25 per cent and creating of 10 crore jobs. (Details not mentioned in the budget)

Target of covering a length of 8,800 kilometer under NHDP next year.

‘5,000 crore India Opportunities Venture Fund to be set up with SIDBI.

Agriculture

Initiative of Bringing Green Revolution to Eastern India (BGREI) has resulted in increased production and productivity of paddy. Allocation for the scheme increased to ‘1,000 crore in 2012-13 from ‘400 crore in 2011-12.

Target for agricultural credit raised by ‘1,00,000 crore to ‘5,75,000 crore in 2012-13.

Inclusion

Allocation for Scheduled Castes Sub Plan at 37,113 crore in BE 2012-13 represents an increase of 18 per cent over BE 2011-12.

Allocation for Tribal Sub Plan at 21,710 crore in BE 2012-13 represents an increase of 17.6 per cent.

Nutrition

Allocation of ‘15,850 crore made for Integrated Child Development Service (ICDS) scheme, representing an increase of 58 per cent over BE 2011-12.

‘11,937 crore allocated for National Programme of Mid Day Meals in schools.

An allocation of ‘750 crore proposed for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA.

Rural Develoment

Budgetary allocation for rural drinking water and sanitation increased from ‘11,000 crore to ‘14,000 crore representing an increase of over 27 per cent.

Employments and Skill Development

Allocation for PMGSY increased by 20 per cent to Rs.24,000 crore to improve connectivity.

Allocation of ‘3915 crore made for National Rural Livelihood Mission representing an increase of 34 per cent.

2 Responses to "Indian Budget 2012-13: First Look"

The budget is unexpected from ordinary person’s point of view. It appears meaningful for only 5-10% of India’s population that are government employees and affluent class of people. Ordinary man will severely face the brunt of very expensive necessary commodities required for everyday living. They are charging more and more taxes. These taxes will go to the national treasure allocated for different scheme across the nation but only 10-15% will be available for the implementation of the scheme. The rest will go to the corruption. In a way, the increased service tax money is channeled to the pockets of ministers via corruption. Poor is still poor. I do not see any improvement for a person whose income is Rs. 1k-10k per month. Contrary to this, he will have to face expensive food, commutation, transport, actually everything. This budget is good for the already rich part of India’s population. Unfortunately, ~92% India’s population still cannot be classified as upper middle class. Per capita income in most states is Rs. ~2k/month.